Tuesday, February 3, 2015

In Kaye v. Rosefielde the Appellate Division of Superior Court held that a lawyer who worked as an independent contractor at the jobs of General Counsel and Chief Operating Officer had an implied attorney-client relationship with Kaye the principal of two Atlantic City businesses. That subjected the lawyer to RPC 1.8 governing lawyers business involvements with current clients.
The App Div affirmed most of the trial judge's findings but limited the remedies. Upheld were voiding the lawyer's interests in businesses he formed for the client, awarding counsel fees, and punitive damages. But Judge Nugent denied the demand that the lawyer disgorge the $550,000/year he had been paid as in-house counsel and personal counsel. Wages paid are not damages defendants have argued.

The New Jersey Supreme Court granted certification "limited to the issue of whether the Appellate Division erred by affirming the trial court's holding that economic damages are a necessary prerequisite for disgorgement of the employee's salary." - gwc

The New Jersey Supreme Court is considering whether proof of economic damages is necessary to disgorge two years’ worth of salary earned by a company’s general counsel in a case of legal malpractice and fraud.

The court heard arguments in the case, Kaye v. Rosefielde, on Feb. 3. At stake is whether plaintiff Bruce Kaye, the chief executive officer of Flagship Resort Condominiums, can recoup at least $1 million in salary from Alan Rosefielde, a New York tax attorney who served as both general counsel and chief operating officer for the company.

Kaye alleged that Rosefielde, who had set up three entities that gave him partial ownership in two of Kaye’s businesses, fraudulently enriched himself at Kaye’s expense, wasn’t licensed to practice in New Jersey and otherwise harmed the company, according to court documents.

Following a 2007 bench trial in Atlantic County, N.J., Superior Court Judge William Nugent ruled almost entirely in Kaye’s favor, finding malpractice, fraud and breach of fiduciary duty by Rosefielde, but he denied the demand for disgorgement.

The only compensatory damages awarded were $4,000 that Rosefielde had charged to the company for a junket to Las Vegas, plus legal fees on the malpractice claim under Saffer v. Willoughby to Kay’s firm, Jacobs & Barbone, of Atlantic City, N.J. The firm was awarded 75 percent of the $1.03 million in fees it requested, or $803,190. Nugent deducted 10 percent because Rosefielde successfully defended part of the malpractice claim, leaving a net fee award of $717,000.

The Appellate Division ruled, in a case of first impression, that a fee award in the legal malpractice context is akin to compensatory damages and thus may be the basis for a punitive damages award. However, the panel nevertheless struck down the $717,000 in fees and $250,000 in punitive damages that Nugent had awarded, and remanded to the trial court to reexamine whether those awards were warranted.

The appeals court did, however, affirm Nugent’s denial of a salary disgorgement. The Supreme Court then agreed to hear Kaye’s appeal on that issue.